Think Tank: Fashion M&A Is No Fad - Employment Law Due Diligence Ensures A 'Stylish Match'

Global M&A activity in the fashion and luxury goods industry has been significant over the past few years, with both headline-grabbing mega acquisitions and smaller, targeted deals dotting the landscape. In the past three years, approximately four such transactions closed every week. Market forces have pushed the appetite for corporate acquisitions even higher, and luxury and fashion industry watchers expect a busy 2019.

While the integration of an acquisition may present different challenges for a large conglomerate than for an independent brand seeking a strategic growth opportunity, there are key labor, employment and personnel — or LE&P — issues common to all business combinations that are oftentimes — even uniquely — front-and-center in fashion acquisitions.

Review Wage and Hourly Compliance

No other LE&P acquisition issue has the potential to create crushing financial exposure like the improper classification and payment of workers.

Systemic wage and hourly noncompliance is particularly troubling because it creates the potential for class and collective action lawsuits. There are many talented and aggressive plaintiff lawyers who are motivated and skilled at identifying class-wide mistakes by employers in the proper payment of workers. Even small violations can lead to multimillion-dollar settlements and verdicts when the impacted class of workers numbers in the many dozens, hundreds or more, especially in jurisdictions with long statutes of limitations. For example, New York employers can be sued for up to six years' worth of wage underpayments; California employers may be on the hook for up to four years of underpayments; the shortest statute of limitations is under federal law, which is two years.

Especially intense scrutiny of a retail target's wage practices is warranted if (a) an unusual number or type of workers are treated as "independent contractors" and are paid on 1099s; (b) if nonsupervisors and/or midlevel administrative employees are "on salary" and not eligible to receive overtime pay; (c) if time-keeping records and break policies are not well documented; or (d) if commission plans are informal or unwritten.

Special attention should also be paid to sales associates who earn commissions. As a general rule, those employees must be paid overtime unless they earn at least 1.5 times the minimum wage (adding regular wages and commissions, divided by total hours worked) and at least half of the associate's income must be from...